2007 (8) TMI 268 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal was justified in deleting the addition of ₹ 7,08,184 which had been rightly sustained by the Commissioner of Income-tax (Appeals) as benefit gained by the assessee within the meaning of section 28(iv) of the Income-tax Act, 1961? Whether, on the facts and circumstances of the case, the learned Income-tax Appellate Tribunal was justified in holding that while giving appeal effect, the Assessing Officer could not charged interest under section 220(2) from the due date of original assessment/demand notice? Held that - On the materials available on record, the Tribunal came to the conclusion that the Assessing Officer was not justified in making the addition of ₹ 7,08,184 as income of the respondent on account of the interest payable or paid by M/s. Siddharth Soya Products Pvt. Ltd. The aforesaid conclusion of the Tribunal being a pure question of fact on the materials available before the Tribunal, no substantial question of law arose for decision. The first question formulated by the order dated February 28, 2007, is thus, not a question of law and cannot be raised in appeal under section 260A of the Act. The effect of the first proviso to sub-section (2) of section 220 of the Act is only that the amount on which interest is payable under sub-section (2) of section 220 will get reduced as per the appellate order. The first proviso to sub-section (2) of section 220 of the Act does not have any effect on the period for which the interest is payable under sub-section (2) of section 220 of the Act. The Tribunal, therefore, was not correct in coming to the conclusion that the Assessing Officer cannot demand interest from the date of original demand notice. The Assessing Officer, in our considered opinion, can demand interest from the date of original demand notice but not on the amount originally assessed but on the amount as reduced by the appellate order. The second question of law is answered accordingly in favour of the Department and the appeal is partly allowed.

Summary

Issues:
1. Addition of income under section 28(iv) of the Income-tax Act, 1961.
2. Charging of interest under section 220(2) from the due date of original assessment/demand notice.

Issue 1: Addition of Income under Section 28(iv) of the Income-tax Act, 1961:

The High Court admitted an appeal under section 260A of the Income-tax Act, 1961, raising the issue of whether the Income-tax Appellate Tribunal was justified in deleting the addition of Rs. 7,08,184 as income of the assessee. The Tribunal found that the Assessing Officer had not verified if the amount was actually payable as interest by another party, M/s. Siddharth Soya Products Pvt. Ltd., to the assessee. The Tribunal concluded that no income had accrued to the assessee based on the seized papers and certificates provided. Citing the Supreme Court decision in Godhra Electricity Co. Ltd. v. CIT, the Tribunal held that income cannot be added based solely on book entries if it has not actually accrued. The High Court upheld the Tribunal's findings, stating that no substantial question of law arose as the conclusion was based on facts available to the Tribunal.

Issue 2: Charging of Interest under Section 220(2) from the Due Date of Original Assessment/Demand Notice:

The second substantial question of law in the appeal concerned whether the Assessing Officer could charge interest under section 220(2) from the due date of the original assessment/demand notice. The petitioner argued that the Assessing Officer was entitled to demand interest from the end of the specified period until the amount was paid, as per the language of the Act. However, the respondent pointed to the proviso to sub-section (2) of section 220, which allows for a reduction in interest if the amount is reduced due to an appellate order. The High Court analyzed the provisions of section 220(2) and its proviso, concluding that while interest could be demanded from the date of the original demand notice, it should be on the reduced amount as per the appellate order. The Court held in favor of the Department on this issue, partially allowing the appeal.

This detailed analysis of the judgment from the High Court of Madhya Pradesh addresses the two main issues raised in the appeal under the Income-tax Act, 1961, providing a comprehensive overview of the Court's findings and legal interpretations for each issue.